10 Organisational capability

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Ahead of the Game: Blueprint for the Reform of Australian Government Administration (the APS Reform Blueprint) recommended that the Australian Public Service Commission (the Commission) conduct periodic external reviews of agency organisational capability with the three pillars of strategy, leadership, and delivery.1 The capability review program was formally implemented at the beginning of 2012 following a successful pilot phase.

This chapter is divided into two parts. The first part is an overview of the capability review program—scope and early findings. The second focuses on the strategies Australian Public Service (APS) agencies employ to manage in a tightening fiscal environment.

The capability review program provides independent, high-level, forward-looking review of the leadership, strategic and delivery capability of an agency. Each review is led by three eminent senior reviewers, two external to the APS and one at Deputy Secretary level, or equivalent, seconded from an agency outside of the one being reviewed. Review teams work constructively with the agency's leadership to assist them to better understand their relative strengths and weaknesses, strengthen their continuous improvement agenda, and, over time, improve their effectiveness. A full outline of the capability review model and the review process, including rating criteria, is at Appendix 5.

Seven agency capability reviews have been completed so far, with more in progress. Three of the completed reviews were pilots conducted in 2011, which informed a report to government in December 2011. The four others were for the Department of the Prime Minister and Cabinet (PM&C), Department of Human Services (DHS), Department of Immigration and Citizenship (DIAC) and Department of Infrastructure and Transport (DIT).2 Over the next few years, capability reviews will be conducted for remaining portfolio departments and three large agencies, namely, Australian Customs and Border Protection Service, Australian Taxation Office and Australian Bureau of Statistics (ABS).

Value of capability reviews

Capability reviews provide individual agencies with a high-level view of their capability, strengths and areas for development. While the findings in the review reports identify the areas needing greater focus, each agency takes ownership for developing and delivering strategies to improve its capability. The priority of strategies is agreed between the agency head and the Public Service Commissioner which ensures the strategies align with the APS-wide approach. This is reflected in this comment provided by an agency following their capability review:

The action plan will give the department a focal point around which to draw together work already underway to form a cohesive picture of what is happening across the organisation, against which progress can be tracked and reported.

Agency feedback on capability reviews confirms the value of a forward-looking assessment of organisational capability. Agencies recognise that the reviews are not a critique of their performance and consider the findings to be a constructive platform of insights that can be actioned for improvement. The following comment reflects agency feedback on the intent of the capability reviews:

Public sector agencies are subjected to many reviews and audits these days, some of which, unfortunately, descend into "gotcha" exercises designed only to find fault. It has been very refreshing to work through this exercise in such a positive manner to identify the most important areas where we need to focus in order to continue to deliver the government's programs in an efficient, effective and professional manner, while at the same time ensuring that we have robust governance and support systems in place to ensure the long term health and sustainability of the department.

A key factor in the success of capability reviews is the level of openness demonstrated by each agency and its staff. This is in part attributed to the credibility of the senior reviewers and the strength of the relationship they develop with the agency's Secretary and senior executive.

Over time, the capability reviews will provide insight into the capabilities of the APS as a whole and highlight systemic issues to be addressed by APS leadership. The data collected are captured and analysed to draw out themes that are consistent across reviews. Completion of more than 23 planned reviews will provide a substantive body of data the Commission will use as a knowledge base to assess and understand APS-wide capability, including where best practice exists and should be shared, as well as systemic development areas. In feedback on the review process Secretaries have said:

… the capability review program is not about penalising agencies or departments but about promoting excellence in public administration.

… will be a better agency for our staff, for our clients and for the government as a result of this capability review. If all agencies have a similar experience over the next few years, then the program will have gone a long way towards achieving the reforms outlined in Ahead of the Game: Blueprint for the Reform of Australian Government Administration.

… I welcome the findings of the report, in particular the recognition of our areas of strength as well as those areas for future improvement and growth.

Assessment process

In the preparation phase, agencies are asked to self-assess their capabilities using the capability review model. This provides insight into the agency's own awareness of its strengths and development areas and provides a baseline for discussion.

In the reviews undertaken to date, half of the ratings in the agency's self-assessments were the same as those in the final capability review reports. Of the ratings that differed, 85% were rated lower in the review report but generally only by one rating. ‘Delivery’ was the only area to receive ratings higher in the review than in the self-assessment. ‘Outcome focused strategy’ showed most discrepancy between the self-assessment and review report, rating lower in six of seven reviews. ‘Motivate people’ was most consistent, rating the same in six of seven reviews.

Figure 10.1 summarises the results for the three pilot reviews and four completed capability reviews against the key elements of the capability model. The table shows marked variation in scores within and across the seven agencies for all capabilities—some agencies are ‘strong’ or ‘well placed’ and others need development. The table also shows the variance between the self-assessment and capability review findings.

In interpreting the table it is important to note that ratings are assessed at the organisation level. In a number of cases the agency had business units that were operating at levels higher than the rating given to the agency overall. In these cases, the real value for the agency is the sharing of better practice internally.

Observations from reviews to date are consistent with APS-wide findings from State of the Service reports. The strength of the capability reviews is that they provide an insight into the range of factors contributing to various capability issues. For instance, capability reviews observed that upward elevation of decision-making has been linked to political responsiveness in some agencies and risk aversion in others.

Capability reviews are based on an approach developed in 2005 and successfully applied in the United Kingdom (UK). There have been three rounds of these reviews conducted in the UK. The first round provided a benchmark against which to measure subsequent progress across the civil service. In the UK there has been a progressive improvement in overall ratings as awareness of, and experience in, building organisational capability has grown.

Preliminary findings

With only a few reviews fully completed it is too early to generalise findings across the whole APS. However, some themes are emerging across the three pillars of leadership, strategy and delivery. These are discussed below. These themes will be tested against the findings of the remaining reviews. At this stage, therefore, they are tentative hypotheses, not firm conclusions.

A consistent theme across completed reviews has been the commitment of each agency's employees to the outcomes of the agency and, more broadly, to the service of the Australian Government and Australian public. All reviews have found that APS employees are intrinsically motivated by the mission of their agency and service to the Australian public. It is also evident that there is a high level of responsiveness of agencies to deliver against changing priorities and shifts of emphasis. Nevertheless, as indicated in Figure 10.1, there are some areas for improvement with these seven agencies. Results are discussed in detail below.

Leadership

Leadership is assessed through the role of each agency's leadership team in terms of strategy and delivery capability. Strategic leadership drives the reforms necessary to shift culture and practice to meet future challenges. A skilled leadership group has a breadth of experience to deal with complex, multidisciplinary problems. Such a group draws insights and establishes links between policy making and successful implementation.

The leadership pillar focuses on features demonstrating strong strategic leadership for an agile, capable and motivated workforce:

Set direction (L1) assesses how the agency's vision is communicated, if the agency works effectively across boundaries and endorses a culture of teamwork, and if there is a commitment to continuous improvement, effective change management and overcoming resistance.

Motivate people (L2) assesses if there is a unifying culture that promotes energy, enthusiasm and pride, with outward-looking role models who act with integrity, confidence and self-awareness, and a desire to achieve ambitious results.

Develop people (L3) assesses if the agency is growing the right skills and leadership to deliver its vision, with a transparent and consistent approach to performance management aligned to its strategy. It assesses, for example, if the agency identifies and nurtures talent, has succession plans in place for key positions and fills key capability gaps through people management initiatives.

Set direction and Motivate people

Completed capability reviews identified the ability to set direction and create a unifying culture that promotes energy, enthusiasm and pride as strengths for APS leadership. Six of the seven agencies were assessed as ‘well placed’ in one or both of these elements (Figure 10.1). Strong leadership capacity is critical to overall agency performance.

The leadership challenges identified by the preliminary findings include leading and managing organisational change and developing the skills and capability of APS employees.

Leading and managing change was identified as an area for further development, with some agencies failing to deliver on formal change initiatives due to poor upfront planning. Some other issues identified include:

reason for change not well communicated

poor appreciation of the need to formally manage change and responsibility for change initiatives not clearly assigned or agreed

lack of momentum to drive change through to completion.

The APS is not alone in this regard. UK capability reviews also identified leading and managing change as a systemic weakness, noting that some agencies are adopting a more strategic approach to change management, with a focus on improving communication within a sound project management framework. Expertise in change management is often not recognised as a specific skill across the UK Civil Service, which may explain why agencies find it difficult to lead and resource complex change programs.3

Develop people

Developing workforce skills and capabilities so APS employees can exercise sound judgement in an environment of increasing ambiguity and uncertainty has long been important. Strategic leadership and management skills are critical in an environment where the APS must respond well and at pace to changing realities and government priorities. Developing the skills and competencies of the workforce is an area where five of the seven agencies require development or had serious concerns (Figure 10.1).

Early indications from the capability reviews completed to date also show that responsibility for management and decision-making is moving further up the hierarchy. This may reflect the complexity of the environment, lack of management skills or lack of critical skills within the Executive Level (EL) or APS 1–6 cohort. Some comments made through the capability reviews that illustrate this are:

SES (Senior Executive Service) do not delegate enough of their core responsibilities to Executive Level staff. There is a concern that capability gaps will result in insufficient delivery of outcomes. Failure to delegate inhibits the ability of staff to develop critical skills to deliver on SES expectations. This is a cyclical problem.

The department is not getting the level or quality of output required from EL 2 and 1 employees. It is not clear whether this is because of poor capability or poor delegation or a combination of both.

The SES is not good at delegation. Despite discussions about this at the SES forum, there has not been much action. There are blockages to development that occur through a cultural view of ‘getting things right’ that prevents people from delegating and developing junior staff …

Understanding the workforce skills required to deliver against today's challenges, and systematically developing them, is critical to future APS capability. The Commission and agencies are working collaboratively to build leadership skills through the Centre for Leadership and Learning (the Centre for Leadership and Learning), which has been tasked to identify and investigate learning and development opportunities that address critical skill gaps. This complements other work in the Commission that is examining strategies for building a performance culture to ensure people are managed effectively, poor performance is tackled rigorously and people at all levels are stretched, challenged and motivated to perform.

Preliminary findings from the capability reviews indicate that in some agencies performance management is inconsistently applied, management of underperformance is weak and skills are limited for assessing and conducting performance management. These observations are supported by the results of the State of the Service agency survey and employee census and outlined in Chapter 8.

The capability reviews noted that workforce planning across many agencies investigated is immature and fails to support business planning and resourcing decisions. A range of issues were identified including:

absence of well-defined operating models or corporate strategies (underpinned by an evidence base), which means there is little to plan against

lack of visibility of current capability gaps or future resource requirements across identifiable fields in policy, finance and information and communications technology (ICT)

lack of identified or nurtured critical job roles

the perception that the government environment is unpredictable and cannot be planned for.

Strategy

Good policy is based on high-quality information, analysis and advice to support decision-making. How well APS agencies set strategy to meet the government's policy directions is explored through the capability reviews. The reviews assess three important elements for building strategy capability:

Outcome focused strategy (S1) establishes if there is a clearly defined agency strategy and assesses the agency's ability to collaborate with political leadership to develop and refine the strategy, and provide clarity about what success looks like and when it has been achieved.

Evidence based choices (S2) leads to policies and programs that are customer focused and based on strategic insight. It addresses questions such as: Is the agency vision and strategy informed by timely evidence and identification of future trends? and does the agency evaluate outcomes and draw on lessons learned in the strategy development process?

Collaborate and build common purpose (S3) assesses the agency's ability to work across government and beyond to address crosscutting issues. It addresses questions such as: Does the agency engage early and learn from stakeholder experiences to align strategies and policies with other agencies, ensuring consistency? and is there common ownership of the strategy with political leaders, partners and citizens?

Initial findings of the capability reviews have identified ‘patchiness’ in policy capability in a number of the agencies which is attributable, at least in part, to:

a focus on short-term responsiveness to ministers

the ‘craft’ of policy development not being handed down apprentice-style to the more mobile workforce

organisational ‘silos’ resulting in advice being developed with minimal internal coordination and external input or review.

Outcome focused strategy

Early findings of the capability reviews suggest that establishing a clearly defined strategy to deliver on the agency's business outcomes may be one weaker area of APS capability, with no assessed agency receiving a ‘strong’ rating.

Specifically, a number of reviews identified a gap between strategic plans and operational business plans. Strategic plans describe an agency's vision and mission, identifying its focus areas. However, some agencies did not translate strategic vision to operational business plans to provide a platform to support whole-of-agency decision-making in key areas such as strategic workforce planning.

In five of the seven reviews, the effects of this gap contributed to the following issues to varying degrees:

lack of strategic foresight and ability to prepare for the future

lack of clarity for employees and, in some cases, external stakeholders on how long-term objectives will be achieved and what the agency's long and short-term priorities are (in some cases this resulted in poor alignment of operational business plans to strategic objectives which, in turn, led to a disjuncture at individual performance plan level)

agency business unit failure to respond to shifts in policy or environmental changes, exposing them to risk

achievement of outcomes not evaluated, resulting in lost opportunity for improvement.

Qualitative comments provided by agencies through capability reviews provide insight into these issues, including these two examples:

The business planning process lacks a reporting framework to monitor progress and to communicate issues to the leadership. It is generally completed out of requirement as opposed to a practical tool to monitor the delivery of branch or divisional outcomes. Branch performance is generally measured by leaders on word of mouth and gut feel. There is a lack of clear line of sight from corporate objectives to divisional, branch, team and individual work plans.

There was very little change in business plans at group level from one year to the next, nor did they link with financial and resourcing decisions.

A more complex and fast-paced environment may be challenging APS capacity to build its long-term strategic capability. This environment is unlikely to become less demanding in the foreseeable future.

One issue identified in a number of capability reviews is that day-to-day operational imperatives take precedence and distract the executive from strategic planning activities. There is a perception that there is little or no time to think and develop longer-term objectives.

Evidence based choices

Building strategic policy capability requires developing strategies based on sound evidence. It involves long-term trend analysis, independent research and advice, and broad consultation and stakeholder feedback (including with program users and citizens, where appropriate).

Preliminary findings of capability reviews indicate that a few agencies identified challenges in drawing on a robust evidence base for policy and program design. While these agencies believe that evidence is available, the issue seems to be that staff are not sufficiently aware of what is available or how it can be deployed. They also feel they do not have enough time to bring policy and program design to bear.

Collaborate and build common purpose

Building strategic policy capability also requires developing strategies based on collaboration and shared understanding of issues and approaches. Capability review findings show that while four agencies are ‘well placed’ with collaboration and stakeholder management, three need to develop more systematic use of stakeholder management strategies and methodologies to achieve good policy and program outcomes. Indicative qualitative comments from the capability reviews highlight some of these issues:

There is no established framework or register of stakeholders. Stakeholder management is approached in an ad hoc fashion.

The report recommended more systematic approach to stakeholders in policy and program development. The stakeholder survey measured quality of relationship not outcome.

Building strategic, long-term policy capability through improved collaboration, a shared understanding of issues and the use of evidence sources is a priority of the APS Reform Blueprint. This is consistent with the early capability review findings and successive State of the Service reports.

Delivery

The Australian National Audit Office adverse findings on the Green Loans Scheme4 and Home Insulation Program5 highlighted the consequences of failing to ensure capability in key business areas, notably with the application of sound governance and project management skills. Similarly, the Palmer Report6 highlighted the importance of delivery capability in the areas of systems and effective processes. This includes administrative systems around ICT and finance, but extends to governance arrangements and HR management systems and processes.

Delivery is the third area investigated by the capability reviews. Delivery focuses on the elements enabling agencies to deliver citizen-focused services:

Innovative delivery (D1) enables appropriate structures, people capacity and enabling systems that are supported by leaders who empower and offer incentives to employees and delivery partners to innovate. It addresses questions such as: Is there an innovation strategy that outlines links with core business?

Plan, resource and prioritise (D2) assesses business planning processes that effectively prioritise and sequence outcome delivery ensuring that delivery plans align with strategy. It assesses the agency's ability to effectively control resources and apply effective program and project management.

Shared commitment and sound delivery models (D3) assesses if delivery models are clear and well understood to achieve cross-boundary outcomes. It addresses questions such as: Are the agreed roles, responsibilities and accountabilities for delivery of outcomes articulated with stakeholders working together with shared commitment to delivery?

Manage performance (D4) assesses if there is quality performance information and an analytical capability for remedial action. It addresses questions such as: Is the agency developing a performance culture that strives for excellent organisation and delivery systems supported by targets set out in the strategy and business plans?

Innovative delivery

Preliminary capability review findings indicate that ‘delivery’ is the strongest area of capability in APS agencies, in particular, innovative delivery. Five of seven agencies were rated as ‘strong’ or ‘well placed’ against this capability.

Plan, resource and prioritise

business planning processes effectively prioritising and sequencing deliverables to focus on delivery of strategic outcomes

robust delivery plans in place that are consistent and aligned with the agency's strategy and effectively deliver on strategic outcomes

maintenance of effective control of the agency's resources

effective management and regular review of agency delivery plans.

Preliminary capability review findings indicate that planning, resourcing and prioritising is an area of weakness for some agencies, with four of seven requiring development. Some observations on these include:

lack of clear baseline provided by strategic business plans

lack of performance information on which to base decisions

limited analytical capabilities to support decisions

immature governance approach and arrangements

lack of clear accountabilities for decision-making.

Shared commitment and sound delivery models

This delivery capability ensures that the models which deliver agency strategic outcomes across boundaries are clear and well understood. This requires identified and agreed roles, responsibilities and accountabilities supported by governance arrangements.

Preliminary capability review findings indicate that four of seven agencies are ‘strong’ or ‘well placed’ on this capability, with three requiring development. These agencies require development in more clearly defining their operating model and interactions across the agency with roles, responsibilities and accountabilities. These accountabilities should be reflected in a strategic corporate plan.

A well-defined operating model facilitates delivery of cross-agency outcomes, supports cross-agency prioritisation and helps reduce duplication and overlap. It also helps promote the role of corporate areas.

Preliminary capability review findings noted that a few agencies have insufficient recognition of their corporate area and the importance HR systems and frameworks have in driving and managing the business. In these agencies, HR systems and frameworks are often seen as a compliance exercise that gets in the way of program priorities rather than as a critical enabling system.

Manage performance

This delivery capability ensures the agency delivers against performance targets to achieve outcomes set in strategy and business plans. This requires high-quality, timely and well-understood performance information which, in turn, allows performance and risk to be tracked and managed across the delivery system.

Preliminary capability review findings indicate that four of seven agencies are ‘strong’ or ‘well placed’ on this capability, with three requiring development.

Over time, capability reviews will provide an APS-wide view of capability, assisting with identifying systematic capability issues and areas of best practice. By being able to point to shortcomings in critical capability, whole-of-government solutions can be developed to achieve long-lasting improvements and address core capability issues.

Summary

The capability review program is in its infancy having completed seven of 23 reviews. The acceptance of the program is evidenced by the willingness of agencies to volunteer to participate, early in the program. Externally the program is well regarded, with potential senior reviewers showing strong interest in participating to gain a better understanding of the APS and to work with the capability review model. Deputy Secretaries are also willing to participate, even though it is in addition to their current workload.

Capability reviews are an effective approach to identifying strengths and areas for development that will assist the APS to become an exemplary public service.

A significant challenge for the APS is the intense pace of work required to keep up with governments that are increasingly driven by the demands of the 21st Century. Often the capacity of APS agencies to focus on long-term issues is overwhelmed by day-to-day demands. In a valedictory address, a former portfolio Secretary stated:

… the immediate pressure of program and service delivery take priority over long term policy development …7

The intense pace of work has not abated since this statement was made. If anything it may have increased. Figure 10.2 shows that the majority of APS employees who had been working at the same level for the last five years or more, identified a more complex environment (68%) and greater workload (71%) as the biggest changes over that time.

Increasing efficiency

This year agencies were asked to identify which demands on agency heads and executive teams had changed over the last three years, and which they expected to change over the next three years. Figure 10.3 shows that senior executives experienced the most significant increase in pressure on their workload in reallocation of resources (55% of responding agencies said this had increased greatly), management of significant change (50%) and setting strategic directions (47%).

Increasing financial pressure faced by government is constraining resourcing levels and accentuating the need to drive greater efficiency in all government operations. The government has committed to hold real growth in spending to 2% a year until the budget returns to surplus. The government has also applied an additional 2.5% efficiency dividend in 2011–2012. This dividend is in addition to the existing efficiency dividend of 1.5% per year. A review of the efficiency dividend8, completed in March 2011 recommended retaining it but improving its flexibility.

Figure 10.3 Workload demands on agency head/executive team time, 2011–2012

Agencies reported they are managing this reduced resourcing by reviewing staffing costs, reviewing business practices and processes, reducing domestic and international travel, reducing the use of consultants and contractors, and reducing printing and publication costs.

APS agencies have also been working together to harness combined purchasing power by coordinating the purchase of common goods and services, such as ICT, travel, stationery supplies and property leasing. Specifically:

better terms have been achieved for the supply of Microsoft products through a Microsoft-volume sourcing arrangement signed in 2009

supply of desktop hardware and associated services will be provided through a new whole-of-government panel arrangement

reductions in the number of Australian Government internet gateways have been achieved through an Internet Gateway Reduction Program

supply of major office machines, such as photocopiers and printers, will be through whole-of-government arrangements

whole-of-government arrangements on travel, rental cars and accommodation bookings have been negotiated through revised contracts.

Increasingly, the APS is also adopting a more coordinated approach to a range of human capital priorities including leadership development, training and development, recruitment, performance management and diversity. Sharing good practice and taking advantage of economies of scale will leverage improved capability. Recent initiatives include:

an APS Leadership Development Strategy, developed by the Centre for Leadership and Learning, is being implemented through a series of new programs

a community-of-practice to enhance leadership learning and development practice has been established across the APS

implementation of an enterprise bargaining framework that promotes greater commonality in terms and conditions of employment across the APS

an APS workforce planning guide and APS job family model have been disseminated by the Commission and training programs developed to build understanding and practice of workforce planning among HR practitioners and business managers

revised guidelines and policies on the size, capability and work-level standards for the SES have been developed by the Commission in collaboration with agencies

the As One—APS Disability Employment Strategy has been released with the primary objective to strengthen the APS as a progressive and sustainable employer of people with disability

the APSjobs online recruitment portal has been upgraded with new APS Recruitment Guidelines and, from 1 July 2012, recruitment advertising moved from print to primarily online.

Web 2.0 technology

Developments in Web 2.0 technologies have created opportunities for government to deliver greater efficiency while keeping pace with citizens' rising expectations about engaging with government and accessing services and information online.

Until recently, activity on the internet was dominated by the use of websites and email (Web 1.0 technology). As commentators have observed, Web 2.0 emerged not as a function of new technology, but because the ubiquity of technology makes new ways of operating and interacting possible. Web 2.0 enables connections and collaborations of all kinds.9

Web 2.0 tools include blogs, wikis and social networking platforms. These types of tools enable communities of interest, with local knowledge or technical expertise, to develop rapidly, build understanding of issues, and ‘crowd source’ to explore and possibly solve problems as they emerge.

Web 2.0 also encompasses the ways in which the internet has become a platform for distributing vast quantities of data and empowered people and organisations to transform data by ‘mashing it up’ (combining it with other data so it becomes useful in new ways).

Thirty-five per cent of APS employees reported having access to Web 2.0 tools in 2011–2012. Access varied across type of agency10 with policy agencies most likely to have access (62%) and larger operational agencies the least likely (23%). Figure 10.4 shows the steady increase in the use of Web 2.0 tools for work purposes (from 22% in 2010–11 to 27% in 2011–2012).

Figure 10.4 Access to Web 2.0 by APS employees in the workplace, 2010–11 to 2011–2012

Most employees who used Web 2.0 tools to carry out work with government stakeholders (68%) and non-government stakeholders (70%) agreed it helped them to do their work more effectively. The most common reasons for this were that it improved their ability to engage with stakeholders (74%), provided ready access to professional or technical information (62%) and improved efficiency of work processes (54%).

Australian Government departments and agencies have increasingly prioritised work in this area. For example, the Australian Electoral Commission has made online enrolment and postal voting available to more than 15 million voters. More than 30% of enrolment transactions are now done online. Similarly, more than one million people have submitted their tax returns electronically. ABS promoted the 2011 Census through social media. Its census Twitter account has acquired more than 16,000 followers, making it the second-largest Australian Government Twitter account. AusIndustry is helping industry across the country through the use of Facebook, Twitter and online seminars, putting industry in touch with its information and programs.

Agencies are recognising that websites can be used for more than providing information to the public. They can be used for more active engagement with citizens and clients, including through running polls, surveys and public consultations online. The use of software and database applications to manage feedback and complaints from the public is growing in sophistication. For example, the Australian Taxation Office uses such software to capture information from taxpayer disputes, from the audit stage through to the objection stage and finally the litigation stage.

Technology is also increasingly being used to drive internal efficiencies and productivity within the APS. Most agencies have developed web-enabled procurement, document management, travel and other corporate facilities. The use of video-conferencing is increasingly driving down the costs of internal collaboration and training.

Innovation

A culture of innovation and continuous improvement is the key for agencies seeking to reduce expenditure without compromising their operations. The employee census indicates almost half of employees (49%) reported their work group had implemented at least one innovation in the last 12 months. Of the most significant innovations reported by employees:

56% changed administrative or organisational processes

52% involved the way services are provided

35% involved interactions with stakeholders.

Leadership is important to creating a workplace culture that fosters innovation. Eighty-nine per cent of employees reported making suggestions to improve their work area. Of these over two-thirds (66%) reported they had been supported by their managers when suggesting new ideas. Over one-half (51%) also reported their work area had implemented an innovation in the last 12 months. These results are similar to last year.

Secretaries responded to this feedback last year by agreeing to adopt an APS Innovation Action Plan11, which they and the Commissioner signed. A number of initiatives have been taken as a consequence, including the establishment of a pilot Centre for Excellence in Public Sector Design which works through a network of public, private, community and academic organisations to explore some of the more complex policy issues. Also there have been a range of specific events designed to showcase and promote innovation including an innovation award in the annual Prime Minister's Awards for Excellence in Public Service and an innovation week that involved over 1,500 people from 43 APS agencies.

The APS Innovation Action Plan identified how critical innovation is in responding to APS challenges and opportunities, noting that the APS needs to employ the most up-to-date thinking and approaches to deal with increasingly complex issues. To thrive in the continually changing world environment, the APS needs the leadership and mandate to deliver innovative solutions to address multidimensional issues and problems.

Shared services

Smaller agencies, especially, may receive potential cost savings (through economies of scale) by sharing their corporate functions. Collectively, these corporate functions are known as ‘back office’ services and include HR, ICT, finance, procurement and payroll.

However, care is required when pursuing such opportunities. A recent UK National Audit Office report12 on the efficiency of shared services across government agencies in the UK concluded that while agencies have invested significant cost and effort in implementing shared services, the expected benefits have not been realised. The report noted that services were overly customised and more complex than they needed to be, which limited efficiencies. There were also issues of poor implementation and the software systems used were complex and expensive.

Similar concerns were expressed by the Western Australian Premier in 2011 when he announced that the state government would be dropping its shared services strategy because it was over budget and unlikely to deliver promised savings. These findings were based on the Economic Regulation Authority's final report on the inquiry into the benefits and costs of providing shared corporate services in the Western Australian public sector. Originally this strategy was designed to provide shared services to 90 government departments and agencies.13

While the APS has not mandated an approach to shared services initiatives, 68% of agencies are using shared services to some extent and 6% are in the process of adopting them.

This year agencies were asked about the scope of their shared service arrangements and to identify what has and has not worked.

Figure 10.5 shows the scope and extent of shared services across the APS. ICT is shared by 70% of agencies, property by 51%, payroll services by 47%, HR by 43% and security by 40%. Typically these arrangements involve a smaller agency ‘piggybacking’ on the arrangements of another agency14, often (but not always) the portfolio department. Alternatively an agency may outsource provision of these services to a non-government third party.

Overall, APS agencies agreed that shared services arrangements were working successfully noting that it was important to identify and manage service standards and the allocation of risks. Specific agency comments include:

Department of Veterans' Affairs (DVA)—Shared service arrangements met all the objectives, including financial benefits.

Safe Work Australia—Lesson learned by the agency is that memoranda of understanding need to be constantly monitored and negotiated in great detail.

Insolvency and Trustee Services Australia—Fully informed and appropriate assessment of options should be considered service-by-service. Ensure business oversight (supported by project management) of any transition encompasses all aspects and needs of operations throughout transition and beyond.

Office of the Australian Building and Construction Commissioner (ABCC)—Shared ICT services with DEEWR reduces staffing requirements and creates efficiencies and economies of scale.

Australian War Memorial—DVA provides legal services to the agency which negates the need to maintain an internal legal resource.

Department of Families, Housing, Community Services and Indigenous Affairs—Due to the size of the department, portfolio bodies that access its Employee Assistance Program under the terms of its contract benefit from a broader program that small organisations rarely have the budget to participate in.

It is likely that the APS will operate in an environment of fiscal restraint in the foreseeable future. With pressure to do more with less, agencies are adopting a broad range of strategies to improve efficiency. Some of these involve working collaboratively with other agencies to harness combined purchasing power for common goods and services, sharing ‘back office’ services and adopting a more coordinated approach to a range of human capital priorities. Sharing of good practice and taking advantage of economies of scale will leverage improved capability. Web 2.0 technology is, for example, being increasingly used to drive internal efficiencies and productivity within the APS.

Even in times of greater fiscal constraint, government policy has to respond to evolving community needs and expectations. As a result, new priorities for government support are identified that must be accommodated within the government's overall funding envelope. This reinforces the enduring requirement for the APS to look for new ways to improve operational efficiency and support government with advice enabling it to reprioritise activities and programs to make room for emerging and higher priorities. The implementation of such decisions requires confident leadership and the ability to manage change and people.

Leading and managing change

A key strength of APS leadership is the ability to set direction and create a unifying culture that promotes energy, enthusiasm and pride. This was reflected in the employee census, with 82% of employees agreeing they have a clear understanding of how their group's role contributes to their agency's strategic directions.

Two out of three APS employees reported they had been affected by major workplace change in the last 12 months. Over half (57%) reported being affected by organisational change, such as change in division or branch structure. Yet only 41% of APS employees agree their senior leaders lead and manage organisational change effectively.

Figure 10.6 shows that APS results are similar to the results achieved by public sector agencies internationally (including the UK Civil Service). The APS is also comparable with the UK Civil Service in quality and visibility of agency leadership, although it falls short of private sector benchmarks.

Figure 10.6 International comparisons of public sector employee perceptions of leadership and change management, 2011–2012

The employee census showed that only 40% of employees agreed ‘in my agency, senior leaders engage with staff on how to respond to future challenges’, with 32% disagreeing. Only 42% of employees reported they were consulted about change.

Good communication is critical to effective change management. This includes identifying the reasons for change and how it will benefit the organisation. Only 38% of employees agreed that communication between senior leaders and other employees is effective. However, 47% of employees from small agencies agree that communication is effective, compared to 37% from large agencies. This also varies across types of agencies15 with 44% of employees from policy agencies agreeing that communication is effective and 35% from larger operational agencies agreeing this is the case.

In the 2011 agency survey, APS agencies were asked to indicate their current change management maturity using a five-level maturity model.16 The five maturity levels are:

Level 1—awareness (increasing recognition of the importance of effective change management to achieving business outcomes)

Level 2—general acceptance (increasing acceptance of the importance of managing change effectively, it continues to be managed in an ad hoc way)

Level 5—leader/excellence (change management is continually evaluated and fed into further strategy and policy development).

Figure 10.7 indicates that in 2011 some agencies (25) were already at the maturity level they believed would enable them to achieve agency goals within the following three years. Most agencies (67), however, indicated they plan to shift one or two levels above their current position over the next few years. A handful of agencies (5) plan to be three levels above their current position. Change management capability is an area agencies identified for improvement in the medium-term.

The challenge for the APS is to continue to build long-term strategic capability despite immediate fiscal pressures and pressures stemming from operating in a more complex, dynamic operating environment. The capability reviews are an important feedback mechanism for agencies seeking to do so.

The capability reviews provide an independent, high-level, forward-looking review of agency leadership, strategic and delivery capability. Seven capability reviews have been completed with the overall findings reported on in this chapter. Specific reports for four of these capability reviews are available on the Commission's website at <www.apsc.gov.au>.

As more capability reviews are completed, the evidence base for the baseline indicators and criteria will strengthen. This will help identify systemic strengths and weaknesses across the APS. At this early stage, preliminary findings of completed capability reviews identify emerging capability gaps. These include the need to:

strengthen leadership and management skills so the APS can respond effectively and at pace to changing realities and government priorities

apply a more strategic and considered approach to managing change in the APS

develop workforce skills and capabilities so employees can exercise sound judgement in an environment of increasing ambiguity and uncertainty

build strategic, long-term policy capability through improved collaboration, shared understanding of issues and the use of a range of evidence sources

improve staff performance management systems to drive high performance across the APS .

In time, capability reviews will build an evidence base for identifying systemic strengths and weaknesses in organisational capability across the APS. This will identify where effort needs to be targeted to help build APS institutional capability into the future.

It is likely that the APS will operate in a tight fiscal environment for the foreseeable future. With pressure to do more with less, agencies are adopting a broad range of strategies to improve efficiency. Increasingly, these strategies involve agencies working collaboratively with one another to harness combined purchasing power for common goods and services and sharing ‘back office’ services. Agencies are also adopting a more coordinated approach to a range of human capital priorities and sharing of good practice. In addition Web 2.0 technology is being used to drive internal efficiencies and productivity within the APS.

1 Advisory Group on Reform of Australian Government Administration, Ahead of the Game: Blueprint for the Reform of Australian Government Administration, Commonwealth of Australia, Canberra, (2010), p. 64.

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The Australian Public Service Commission (APSC) is a central agency within the Prime Minister and Cabinet portfolio. The Commission supports two statutory office holders: the Australian Public Service Commissioner - who is also agency head - and the Merit Protection Commissioner. Their functions are set out in sections 41(1) and 50(1), respectively, of the Public Service Act 1999.